Date of publication: Jan 23, 2014
Section heading: Business Times
Page number: 016
Byline / Author: By Rupa Damodaran
KUALA LUMPUR: THE Consumer Price Index (CPI), the official barometer used to measure the pressures of inflation in the country, rose by 2.1 per cent last year.
It falls well within the comfort level of Bank Negara Malaysia's two to three per cent expectation.
The inflation outlook for this year is, however, likely to show an upside risk, especially after the electricity tariff hikes in January, warned economists.
The Statistics Department said yesterday the CPI for December rose by 3.2 per cent compared with a year ago, higher than the Business Times poll expectation.
It was led mostly by increases in food and transport prices.
Credit Suisse economist Santitarn Sathirathai said the pick-up in food and beverages was the main contributor to the increase in head- line inflation.
"We estimate that the sequential momentum of consumer price inflation (calculated as a moving average of the three-month change in the seasonally adjusted CPI) has picked up significantly since last September, when the subsidised fuel prices were hiked."
A weaker ringgit versus the US dollar would also likely push up the headline number, he said, adding that the the lagged impact of the ringgit depreciation was also another factor which contributed to the upward pressure on prices last year.
The research house recently revised up the average inflation forecast to 3.5 per cent for this year.
"It would reflect the larger-than-expected hike in the electricity tariffs which should add about 0.4 per cent to the headline number.
"In our view, the government would need to raise the subsidised fuel price again around the middle of this year to bring down the budget deficit."
Bank of America Merrill Lynch economist Dr Chua Hak Bin also described inflation as the main risk and challenge for Malaysia this year.
Following recent government subsidy cuts on sugar, petrol and electricity, food and beverage prices have risen as businesses pass on cost increases to consumers. RON95 petrol and diesel prices were hiked by 10 per cent last September, sugar prices rose 12 per cent in October, while electricity tariffs increased 14.9 per cent to 16.9 per cent effective January 1.
The Lunar New Year, which falls on January 31, is also contributing to higher food prices this month.
"Furthermore, according to the Malaysian Employers Federation, full implementation of the minimum wage policy, which took place in January 1, will impact 1.8 million workers ."
The policy, introduced last year, was deferred until December 31 last year for foreign employees in the small and medium enterprises.
"We expect the government to press ahead with its fiscal conso-lidation plan and pencil in a fuel price hike by the middle of this year."
The impact from a 10 per cent fuel price hike is about 0.6 per cent points to headline inflation while the six per cent goods and services tax, due to be implemented in April next year, will also keep inflation on the boil.
"The impact on headline inflation from the GST will be about 1.4 per cent points, by our estimates. We are forecasting inflation to average at 3.6 per cent this year and to 4.5 per cent next year."